The one graph that proves that welfare (AFDC / TANF) is not a work disincentive

Image: Bill Clinton, masquerading as a liberal, signs TANF into law. (source)


TANF--also known as "welfare"--was designed with one thing in mind: laziness. Republicans and Democrats alike couldn't stand the idea of someone capable of working choosing not to work, so they established complicated rules about "work activities" (a polite euphemism for unproductive busywork) to ensure that no one on TANF was idle. They obviously assumed that the majority of people on AFDC, the program TANF replaced in 1996, did not actually need government assistance, as they created time limits: families cannot collect TANF benefits for more than 24 consecutive and 60 total months. And, no childless adult can receive any type of welfare benefit.

TANF rests on the assumption that people who don't work are idle because they want to be; the key challenge of welfare is to motivate unmotivated people into finding gainful employment. After all, anyone can get a job. (not)

But let's look at this another way. The American safety net is designed to keep people in paid employment and off welfare. The work activity requirement means you can't be idle and on welfare (and is designed to frustrate people into leaving welfare to get a job); the time limits mean you can't make a career out of your welfare benefits. This stands in stark contrast to other countries, whose safety nets are more like safety hammocks--so generous they encourage people to avoid work and live high off the government dole.

Stated differently, we must have a stingy safety net or people will become dependent on welfare and choose not to work.

But if this is true, then the United States should have more people working than countries with more generous safety nets. What if we compare the United States' employment-to-population ratio (the number of people ages 15 to 64 who have jobs divided by the total population of people ages 15 to 64) to that of the social democracies? If a stingy safety net really does encourage people to work, then the United States should have a far higher employment-to-population ratio. It does not:

The United States' welfare system is so inefficient that we could become a social democracy without spending another penny

Image: The Ford Pinto was such a poorly designed car that it was literally a death trap. Imagine if you had to choose between a Ford Pinto and a higher quality, safer car, for the same price. (source)


My previous post on the incredible inefficiency of the American welfare state showed how a median income American household must pay about 50% of their income in taxes and private spending for social welfare, while a household with that income in a social democracy would only spend about 40%--and get far more for the money. See the full piece for caveats, but it's clear that social democracy is a better deal; even though the typical citizen pays less, every single citizen gets many benefits--like paid parental leave, a month of paid vacation, a month of sick days, paid extended sick leave, child care, etc--that very few Americans get. Americans love to cry foul at 40% tax rates in Scandinavia, while remaining curiously silent about paying 25% of their income for private employer-sponsored health insurance.

But there is another way to measure the incredible inefficiency of the American social welfare system. It's not just a bad deal at an individual level--it's a bad deal at a national level as well.

The OECD collects data on how much money is spent on social welfare in member countries--both private and public spending. The verdict? The United States is comparable to the social democracies, spending 30% of GDP on social welfare. The social democracies spend 30-33% of GDP on social welfare; Norway only spends 25%. Here is the OECD's graph of their data (which I modified for clarity, underlining the USA and the social democracies (Norway, Finland, Austria, Denmark, and Sweden) in red):

(click to see graph unobscured by side bar)

Yes, we spend just as large a portion of our GDP on social welfare as Finland, more than Norway, and slightly less than Austria, Sweden, and Denmark. This may be difficult to believe, because--as I explained in the previous post--social democracies offer higher service quality and universal coverage. That they provide better services to more people with the same investment is testament to the utter folly of the American welfare system.

[Update 07/07/2014: In case you think that these numbers are some fluke* based on the unprecedentedly high cost of health care in the United States, and that--somehow--the fragmented public-private model we rely upon for health care might somehow work for child care, long term care, or some other social welfare service--a recent study found that the government-run, universal, social democratic long term care systems of Germany and Japan--despite achieving universal coverage--are far less expensive than the long term care system in the United States:

In Germany and Japan, social insurance programs are universal, support family caregivers, and allow individuals considerable flexibility in securing the services they require...when we compared public spending on long-term care, we found that spending in the United States is actually higher than in Germany even now, prior to enactment of the CLASS Act, and is only slightly lower than in Japan.

(The CLASS Act was ultimately repealed). Obviously, once private spending is counted, the American long term care system as a whole is far more expensive than either Germany or Japan's system, despite enormous gaps in the American system. Universal, social democratic systems are very efficient, no matter what the benefit.

*As if the design of the American health care system is somehow not responsible for its own cost inflation.]

Here is a chart I modified from my first post on this issue to show this incredible inefficiency more clearly. Percentages indicate the percentage of citizens covered by each benefit; "universal" indicates 100% coverage.